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CGassist.168
CGassist.168, Accountant
Category: Capital Gains and Losses
Satisfied Customers: 3444
Experience:  Tax Accountant
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I am a foreigner, non resident of USA and my 3 sons (residents

Customer Question

I am a foreigner, non resident of USA and my 3 sons (residents of USA) want to donate to me agricultural land in Florida owned by them which is currently leased and earns rental. Land base cost $200,000 ....current value $400,000. I need this income for ordinary household living purposes outside USA and intend to sell this land within 5 years hopefully for $800,000.
Questions :(1) What is the gift tax payable by my children? Is there any way to minimize or avoid it? (2) As a non resident foreigner do I pay capital gains tax in 2020 on the sale of this land for $800,000 ? How much $ ?? Thanks Skip
Submitted: 1 year ago.
Category: Capital Gains and Losses
Expert:  CGassist.168 replied 1 year ago.
Thank you for contacting us today. My name is ***** ***** my goal is to efficiently assist you with your Capital Gains matters.
Q1: What is the gift tax payable by my children?
A1: If a U.S. person gives land as a gift, gift tax will be imposed on the fair market value of the land minus the value of any applicable exclusion. “Fair market value” means the price at which a seller would sell to a knowledgeable, unrelated buyer. In the case of land, the amount shown in a recent professional appraisal of the land is likely to be the safest value to use. As of the 2012 tax year, the top gift tax rate was 35 percent of the taxable value of the gift.
Exclusions
Generally, you are entitled to a $14,000 gift tax exclusion per person per year as of 2013, meaning that you are only taxed on that portion of your gift that exceeds $14,000. Of course, gifts of land are usually worth more than the exclusion.
REFERENCE SOURCE:
http://finance.zacks.com/land-gift-tax-implications-6874.html
Q2: Is there any way to minimize or avoid it?
A2: Yes, apply the lifetime gift exclusion, which is currently $5.43 million. This means that currently, a U.S. person can gift away this amount and not have to pay tax on it. A Form 709 needs to be completed by the U.S. person(s).
Link to Form 709/instructions:
http://www.irs.gov/pub/irs-pdf/f709.pdf
http://www.irs.gov/pub/irs-pdf/i709.pdf
Q3: As a non resident foreigner do I pay capital gains tax in 2020 on the sale of this land for $800,000 ? How much $ ??
A3: As the land is located in the U.S., income derived from it is considered effectively connected income, and some, if not all of that income could be taxable unless there is a tax treaty between the U.S. and the other country indicating otherwise. You can read more about effectively connected income at the following link;
http://www.irs.gov/Individuals/International-Taxpayers/Effectively-Connected-Income-%28ECI%29
There is a tax treaty between the U.S. and Jamaica. I will take a look at it and get back with you soon.
Let me know if I can be of further assistance to you regarding this matter.
Expert:  CGassist.168 replied 1 year ago.
Article 6, paragraph 1, of the tax treaty between the U.S. and Jamaica state the following;
1. Income derived by a resident of a Contracting State from immovable property (real property), including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State
When you sale the land you can complete a Form W-8ECI Form to claim tax treaty benefits.
Link to Form W8-ECI/Instructions:
http://www.irs.gov/pub/irs-pdf/fw8eci.pdf
http://www.irs.gov/pub/irs-pdf/iw8eci.pdf
Link to full treaty:
http://www.irs.gov/pub/irs-trty/jamaica.pdf
Let me know if this clarifies matters for you.
Customer: replied 1 year ago.
Thanks Angela, Please also respond re the gift being their minority (49%) shareholding in a Florida Co. which does business as a plant nursery and owns land. The land is likely to be sold in the next 5 years for a gain and I would then want to achieve the minimum taxes paid in the USA on (1) the gift of their shares to me now (2) the capital gain in 2020 on the sale of the land by the Co......and (3) any tax on the Co. distributing the net gain to me as (a) a dividend ....or (b) as a distribution of the cash in specie on a liquidation of the Co. which has no other asset. What would you advise ? Regards Skip
Customer: replied 1 year ago.
Yes.....I am a resident of Jamaica! Skip
Expert:  CGassist.168 replied 1 year ago.
Hello again,
While I would like to continue on with you, you've just asked a different set of questions which will take some time to get the answers to. Time that I don't have right now because I need to leave the computer for a while. Therefore, I am going to release this question back into the question queue which will allow another to take it from here. Sorry that I can't continue on with you.
Customer: replied 1 year ago.
OK....thanks.....I presume that the next expert will see my full correspondence with you to understand my status as a Jamaican resident. Regards Skip
Customer: replied 1 year ago.
Hello, I really would appreciate a response from the new tax Expert....................Thanks.............Skip